Tango with cash

DOUG  By Guest Blogger Doug Rowat
.

Years ago, when discussing insurance risk, Warren Buffett noted that the biggest earthquake in US history, which measured 8.7 on the Richter scale, didn’t occur at some tectonic fault line, rather it occurred in, of all places, New Madrid, Missouri. It was, in short, unforeseeable. Last year’s bear market, due to the completely unexpected occurrence of Covid, falls somewhere near the New Madrid earthquake on the probability spectrum.

Why am I talking New Madrid earthquakes? Because negative market events are rarely anticipated. And therefore an average investor’s decision to hold more cash is almost certainly not made prior to such events but, much more probably, made DURING the event itself. And if it’s made during the event then emotions enter strongly into the decision-making process.

This is the first problem with increasing cash positions. It’s almost always an emotional decision. In investing (and with most things, frankly) emotional decisions are bad decisions.

The second problem is that average investors rarely raise modest amounts of cash during, figuratively speaking, market earthquakes. On the contrary, they overstep and end up holding far too much of it. Here it’s instructive to look at recent Federal Reserve data. In particular, US commercial bank deposits. In other words, the sideline cash being held by average folks.

Commercial bank deposit levels almost always increase over time simply as a function of a gradually expanding economy and inflation. But during the Covid crisis, deposits have expanded dramatically. In 2019, for example, deposit levels grew by less than 6%. But in 2020, deposit levels ballooned by 22% and they continue to rise well above-trend:

Deposits, all US commercial banks

Source: Federal Reserve Economic Data; Shaded area equals recession

The third problem with holding cash is that investors now have to be correct with their re-entry point back into the market. In others words, investors have to be right twice—the correct exit AND the correct re-entry point. Needless to say, average investors usually do a poor job of both. Throughout the Covid crisis, this has certainly been the case. Here’s what it looks like when those commercial bank deposits, which continue to rise, are plotted against the S&P 500, which continues to soar to record levels:

US commercial bank deposits (red line, RHS) vs S&P 500 (blue line, LHS): cash is being held on the sidelines at the incorrect time

Source: Federal Reserve Economic Data; shaded area equals recessions

Now, admittedly, a great deal of these increased commercial bank deposits are a function of more money supply. In other words, stimulus from the US government and the Fed. But nevertheless, it’s a telling comment on average investor behaviour that more funds are being held in bank accounts earning almost nothing while capital markets skyrocket.

Beginning in 1994, independent research group Dalbar began tracking the outcome of average investor trading of mutual funds versus the underlying performance of the funds themselves. Naturally, emotion-driven, risk-avoiding average investors consistently underperform buy-and-hold, full-participation investment strategies. Very badly underperform, in fact. The 2020 report (showing 2019 performances), for example, showed that the average equity fund investor underperformed the S&P 500 by more than 500 basis points.

The Dalbar report comes out annually with the latest version set to be released March 31, 2021. Gazing at the charts above, I can only imagine how terrible the 2020 performances are going to be for average investors.

So, your options? Either start putting your cash to work now or head down to Missouri and wait for the next earthquake.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

117 comments ↓

#1 crowdedelevatorfartz on 02.20.21 at 12:15 pm

Doug.
Are financial swamis expecting a lot of the “stashed cash” to eventually get pumped into the market?
As the economy heats up?

#2 TurnerNation on 02.20.21 at 12:17 pm

Here is the Kanada weekly update. Today’s new variants: Zambian, and Jordanian.
The Lockdown is hereby extended until ____.
Modeling now predicts a Deadly 14th wave appearing next week. We need your to quadruple-down on your CV Protocols.

— Here’s evidence we are in Economic Lockdowns, nothing for our health Comrades:

https://westphaliantimes.com/quebecs-premier-shut-down-restaurants-gyms-while-provinces-public-health-advised-against-their-closure/
“New public health recommendations from Fall 2020 that were previously confidential were made public today: the memos show that the province’s public health recommended keeping restaurants, gyms, museums, and cinemas open throughout the fall, but the premier ignored the recommendations.”

………..

USA getting hit hard in WW3. This is ongoing multidimensional warfare. Economy, culture, society, morals, morale.

Feb 21: GM idles shifts at 4 factories amid arctic blast; 8,000 workers affected
Jamie L. LaReau Detroit Free Press
https://www.freep.com/story/money/cars/general-motors/2021/02/15/gm-assembly-plants-arctic-blast/4487904001/

Feb 19: Ford can’t get parts, must shutter plants in Kentucky, Ontario
Phoebe Wall Howard Detroit Free Press
https://www.freep.com/story/money/cars/ford/2021/02/19/ford-cant-get-parts-shutter-kentucky-ontario-plants/4516733001

Earlier in Feb:
GM to idle 3 plants in North America due to semiconductor shortage
https://www.freep.com/story/money/cars/general-motors/2021/02/03/gm-plants-north-america-semiconductor-shortage/4373284001/

…..
— As an aside, every square inch of Earth, Space and Water is has been weaponized up.
https://en.wikipedia.org/wiki/Weather_warfare

-Wikipedia links to this but page is no longer there, check Internet Archive.
House, Tamzy J.; et al. “Weather as a Force Multiplier: Owning the Weather in 2025” (PDF). US Air Force. Retrieved April 17, 2012.

#3 KNOW IT ALL on 02.20.21 at 12:19 pm

CASH IS TRASH!

#4 Faron on 02.20.21 at 12:21 pm

#180 Sail Away on 02.20.21 at 12:06 pm

#171 LP on 02.20.21 at 10:04 am
#11 Faron on 02.19.21 at 2:17 pm

One must choose their hills to die on. Although Faron has perhaps more of those hills than most people, I suspect in this case he used discretion.

More hills than the Himalaya. Geographic preferences are personal, but in my case, I prefer the sub-alpine with its bonzai krummholtz, glittering tarns and bright granite or, on the island, red karmutsen basalts. That only comes with hills if you aren’t lucky enough to be in the Arctic.

Anyhow, a smidge of your reason made it’s way into that decision.

#5 Paddy on 02.20.21 at 12:28 pm

5% underperformance….yikes…that’s a lot of money over the long haul….thanks again for another great article Doug! Hey how’s your sport card collection doing?

#6 Ponzius Pilatus on 02.20.21 at 12:32 pm

I just read somewhere that Warren the Leading Indicator is 30% in Cash.
Could be wrong.

#7 Faron on 02.20.21 at 12:40 pm

Thanks for your post today Ryan. Because I know you like a good pedant:

Respecfully, every earthquake occurs on a fault and faults are tectonic features.

Your point here is still salient and maybe even more than intended. There was a fault that was deeply hidden in New Madrid just as there are faults in the financial system deeply hidden until felt. In this case perhaps insanity in the options market, panic buying of bitcoin sucking $$$ from other assets, spiking interest rates as bonds get sold off.

Yours,

permabear quasi geologist Faron

#8 Sail Away on 02.20.21 at 12:46 pm

Cash. Ahhh. Just the mention warms the cockles of my heart.

You are correct, Doug, that emotions and cash are bad mojo. This applies to 99.9999% of people (credit: SA Research Institute).

But… there are the outliers who are not ruled by emotion… My uncles Warren and Charlie hold lots of cash at all times and use it to take advantage of sale prices. Of course this is cash that accumulates naturally and isn’t gained by emotional panic selling. Charlie is a big fan of holding lots of cash and being very very patient. The door opens when it opens- you can’t force it.

#9 Linda on 02.20.21 at 12:53 pm

Doug, glad to see you acknowledging that federal stimulus money is the likely cause of bank accounts swelling. However, given that the pandemic is still going on & that plenty of folks have economic uncertainty over employment, seems that keeping cash on hand is actually the result of lots of folks thinking that it would be wise to keep a reserve. After all, how does one reconcile the wisdom of keeping emergency funds to hand with investing? Yes, one will probably score a good return just now, but Murphy’s Law tends to prevail. So could easily be that one ‘must’ sell just as the market does a correction. If the cash reserve is all one has to cover the monthly nut in the case of job losses, seems to me that the level of risk is simply too much for most to feel comfortable with.

#10 TurnerNation on 02.20.21 at 1:23 pm

So what’s really going on in Kanada, what are be being distracted over….wait Breaking News just in a deadly new Malaysian variant has been detected!! Ok I made that up to show how easy it is.
(The same thing was done with those 2 missing Boeing 777s. Every few weeks it was ‘India radar detected this’ or wait ‘Brazil radar detected that’. Remember that song and dance it lasted almost a year. No real answers were offered of course).

– Kanada is being bankrupted. 10s of billion each month in CV benefits. They showed their hand in 2019, mocking us with the new position of “Minister of Middle Class Prospertity”. Flip that 180 degrees to make sense and yeah a year later here we are.
– Talk of BC Berlin Walls; QC Border closures; AB Wexit; Manitoba targeted by particularly evil CV rules around shopping; Atlantic Bubble; Cruise ships banned.
The enemy has us encircled and isolated and cut off. This is a war. For the next attack. What will it be? That crazy leaked document hinted at Supply Chain issues.

….
Opinion piece in Germany the page will translate 4 u:

“Corona has achieved what the world wars did not do”
Stand: 19.02.2021
https://www.welt.de/kultur/plus226584357/Heribert-Prantl-ueber-Corona-Autoritaer-alternativlos.html

–Sure As noted last MAY. My city is still shut down and darkened For our Health.
#149 TurnerNation on 05.20.20 at 7:21 am
You must realize, this is WW3 the globalist have unleashed. Why? War mean no rules apply. Total chaos. Keep your eyes on the spoils, the Land. The main streets of your town sit empty and darkened. Ready for the taking.

………….
Well duh, this is how life works. Once again these are Economic Lockdowns:

“No Covid variants found on London Tubes, buses and stations …www.bbc.com › news › health-56110232
1 day ago — Scientist taking samples from the London underground network … Monthly tests have found no traces of coronavirus, including new variants, in air samples and swabs of London’s Tube trains, buses and stations. … team can study the genetic make-up of any coronavirus to detect any of the variants found “

#11 Ponzius Pilatus on 02.20.21 at 1:36 pm

#179 Faron on 02.20.21 at 11:59 am
#171 LP on 02.20.21 at 10:04 am

#11 Faron on 02.19.21 at 2:17 pm

I don’t think of this as a milataristic conflict in which I could be “outflanked”. Saying I was outnumbered was a bit of a joke. The choice was between digging my heels in and saying no whilst knowing my bias for overweighing risk or seeing my partnership as equal and giving her the benefit of the doubt. I’ll admit to absorbing some advice along those lines from this comments section.
————–
Happy Wifey, Happy Lifey.
And never look back on major life decisions.
When it’s done, it’s done.
I consider myself a “reason”-able person.
But most of my major purchasing decisions have had a large “feeling” component to it.
Cars in particular.
That’s why I stay away from Showrooms, now.

#12 Penny Henny on 02.20.21 at 1:52 pm

Hey Doug, knowing that you collect hockey cards what is you opinion of the new collectible ‘digital sport moments’?

https://www.wealthsimple.com/en-ca/magazine/blockchain-trading-cards

#13 Wrk.dover on 02.20.21 at 2:01 pm

If borrowers would rent some of this deposit cash for fair value, central banks wouldn’t have to prints so damn much more of it.

But, then pensions would sustain and the economy would balance it’s self on it’s own. Like back when frat boys were still in studying economics, instead of merely merrily molesting economies.

#14 willworkforpickles on 02.20.21 at 2:04 pm

Those with pent up spending urges are among the many and will spend like mad this spring like its the thing to do because they perceive everyone else is. When those stay at homes savings are mostly spent and the buying frenzy fizzles out, a big market correction in late spring of 2022 could be more than speculation.
The timing seems to fit with interest rates ascending and a RE meltdown in early 2023.

#15 print baby print on 02.20.21 at 2:05 pm

Now, admittedly, a great deal of these increased commercial bank deposits are a function of more money supply. In other words, stimulus from the US government and the Fed.
________________________________

by stimulus, you mean … printed money out of thin air?

maybe people now understand bitcoin and gold…

40% of all US dollars were created in 2020.

Fiat currencies are garbage. you either own stocks, or physical assets, gold coins, collectables, crypto currencies, houses…

anything but cash and bonds and gic’s

#16 Dr V on 02.20.21 at 2:20 pm

4 faron – how about clayoquot plateau?

https://bcparks.ca/explore/parkpgs/clayoquot_pl/

Closed right now though (Covid) and under a heap of snow

#17 fixed income is... on 02.20.21 at 2:24 pm

KAPUT.

best to learn to sell options . Self-sufficient, easy peasy

#18 Doug Rowat on 02.20.21 at 2:37 pm

#1 crowdedelevatorfartz on 02.20.21 at 12:15 pm

Doug.
Are financial swamis expecting a lot of the “stashed cash” to eventually get pumped into the market?
As the economy heats up?

—-

Yep. Cash combined with enormous pent up demand is good for both the economy and markets. Everybody’s waiting to get out of their cold houses and spend money on trips to Cancun, right?

—Doug

#19 Doug Rowat on 02.20.21 at 2:46 pm

#5 Paddy on 02.20.21 at 12:28 pm
5% underperformance….yikes…that’s a lot of money over the long haul….thanks again for another great article Doug! Hey how’s your sport card collection doing?

—-

The 2019 underperformance for average investors was unusually bad, but long term it still runs 350-400 bps below market. I’m betting 2020 will be far worse than 2019.

And Lebron is better than Bitcoin.

—Doug

#20 Doug Rowat on 02.20.21 at 2:51 pm

#7 Faron on 02.20.21 at 12:40 pm

Thanks for your post today Ryan. Because I know you like a good pedant:

Respecfully, every earthquake occurs on a fault and faults are tectonic features…

—-

It’s Doug. How do you like irony?

—Doug

#21 leebow on 02.20.21 at 2:56 pm

Who underperformed S&P 500? Average investor or investors on average?

The objective isn’t to outperform S&P 500. Say, Buffet advocates 90% in a S&P 500 ETF + 10% in T-Bills. Surely that reasonable recommendation would underperform S&P 500 in 2019, especially after fees. But Buffet’s portfolio is superior from the quantitative point of view.

Retail investors are conditioned to believe in extreme opinions. So they do the only thing they know – go into cash whenever they get spooked by doomsayers.

#22 Faron on 02.20.21 at 2:56 pm

#16 Dr V on 02.20.21 at 2:20 pm

4 faron – how about clayoquot plateau?

https://bcparks.ca/explore/parkpgs/clayoquot_pl/

Closed right now though (Covid) and under a heap of snow

Ah, yes good point. Limestone too. Marble meadows up in Strathcona is another gem. It is to die for in that regard. I love showing pictures from thattaway to mainland friends. They can never believe that kind of alpine beauty is on the island.

I understand the intrusive geology, but it still boggles my mind that Vancouver Island has massive limestone formations intercut with basalt.

Kinda hilarious that a provincial park that one has to be extremely determined to visit is closed to COVID.

Dr. V, do you ever get up on the Kludahk Trail/San Juan ridge?

Oh, and the requisite, Cain sucks tell your friends ;-)

#23 Faron on 02.20.21 at 3:00 pm

#17 fixed income is… on 02.20.21 at 2:24 pm

KAPUT.

best to learn to sell options . Self-sufficient, easy peasy

Sell? You dang well better know what you are doing. Selling options is a great way to expose yourself to theoretically infinite losses. Horrible idea unless you options trading is your life’s work and you are expert at risk management. Very very few are.

#24 Penny Henny on 02.20.21 at 3:09 pm

To Dominoes lining up.
In regards to property tax and home values in different municipalities.
Here is an example of a house in Welland which just sold for $625,000 (around the corner from me) and the property taxes are $3376, not 8 or 10 thousand like you would like us to believe.

https://housesigma.com/web/en/map?listing_days=0&sold_days=7&de_list_days=7&house_type=%5B%22all%22%5D&list_type=%5B3%5D&listing_price=%5B0,4500000%5D&rent_price=%5B0,10000%5D&bedroom_range=%5B%220%22%5D&bathroom_min=0&garage_min=0&basement=%5B%5D&max_maintenance_fee=0&school_condition=%7B%22elementary%22%3A1,%22secondary%22%3A1,%22public%22%3A1,%22catholic%22%3A1,%22match_score%22%3A0%7D&show_school=0&show_comparision=1&square_footage=%5B0,4000%5D&front_feet=%5B0,100%5D&open_house_date=0&description=&zoom=15&center=%7B%22lat%22%3A43.00047292437901,%22lng%22%3A-79.26764488220216%7D

Next here is a home in Toronto just sold for $641,000 and it’s property taxes are $1667 per year.

https://housesigma.com/web/en/map?listing_days=0&sold_days=7&de_list_days=7&house_type=%5B%22all%22%5D&list_type=%5B3%5D&listing_price=%5B0,4500000%5D&rent_price=%5B0,10000%5D&bedroom_range=%5B%220%22%5D&bathroom_min=0&garage_min=0&basement=%5B%5D&max_maintenance_fee=0&school_condition=%7B%22elementary%22%3A1,%22secondary%22%3A1,%22public%22%3A1,%22catholic%22%3A1,%22match_score%22%3A0%7D&show_school=0&show_comparision=1&square_footage=%5B0,4000%5D&front_feet=%5B0,100%5D&open_house_date=0&description=&zoom=14&center=%7B%22lat%22%3A43.650671321710654,%22lng%22%3A-79.57672119140626%7D

These examples and thousands of others are available for you to see on HouseSigma. Free to sign up.
From your comments yesterday it becomes very clear that you own no property and are naïve to boot.

So yes Toronto taxes are much less based on Actual Cash Value and using assessed value to compare one municipality to the next is a fools errand.

Don’t fall for that trap. Property taxes are based on market value assessment, and many homes are not actually reassessed correctly (ie – street value) until they change hands. Then huge tax hikes can take place – a nice welcoming for the new owners. – Garth

#25 SW on 02.20.21 at 3:34 pm

Interesting post.

On the subject of earthquakes, we were recently renewing our home insurance policy. We can afford to self-insure for small stuff, so we have large deductibles for most things. What we are interested in is insurance for total loss.

Reading the policy documents closely and questioning the broker, we have no coverage for total loss due to earthquake. Fire, flood, storm, ice and so on is covered.

For a house worth $250K the company charges $245 for earthquake coverage. We took it.

We live on a fault, on clay, in the St. Lawrence valley. If there was a significant earthquake it will shake like jello around here. We’ve been here 20 years; last shake was 2002 which broke a few downspouts.

#26 Faron on 02.20.21 at 3:37 pm

#11 Ponzius Pilatus on 02.20.21 at 1:36 pm
#179 Faron on 02.20.21 at 11:59 am

I consider myself a “reason”-able person.
But most of my major purchasing decisions have had a large “feeling” component to it.
Cars in particular.
That’s why I stay away from Showrooms, now.

Ha, yeah. Same way except reasonable to the point of paralysis is my typical approach. My mind is an annular mode and my life is made better by having someone close who can put a boot to my butt from time to time.

#15 print baby print on 02.20.21 at 2:05 pm

Your narrative is a common one these days. Following a narrative in markets or anything is a bit like riding a magic carpet. Super fun, self confirming, and may take you places, but when the genie goes away you better hope you aren’t sailing high above the streets of Dubai.

Although I’m beginning to agree that bonds are set for a very non-productive few years until interest rates make them useful for fixed income again. The 30 year is just starting to crack breakeven, so there’s hope there.

#27 Penny Henny on 02.20.21 at 3:41 pm

Also to Dominoes if you need me to provide you with more examples I’d be happy to.

Also just wanted to add this here, when I moved from Etobicoke to Welland in 2017 the house I moved into would be considered very comparable to the one I sold. My taxes in Toronto were about $3600 and here in Welland they were about $3200, so about 10% less for a comparable house on an comparable lot.

#28 Faron on 02.20.21 at 3:53 pm

#20 Doug Rowat on 02.20.21 at 2:51 pm

How do you like irony?

—Doug

Makes the world go ’round.

#29 Re, faron on 02.20.21 at 3:56 pm

Good grief . knowledge is the antidote of fear

There’s risk in anything , like opening a restaurant as an example

‘you better know what you’re doing ‘

That’s why I noted to educate oneself. Capiche?

#30 Adam on 02.20.21 at 4:02 pm

Serious question. I am relatively new to this blog comments section. What is the deal with user “TurnerNation”? All of his posts sounds like manifestos and scare the hell out of me. His posts are filled with random thoughts and abrupt out of place comments and I don’t even know what I am reading half the time. Yet the guy seems to post here every single day without fault.

#31 Flop... on 02.20.21 at 4:22 pm

Alright, alright.

I take a bit of time off to concentrate on my Financial Facelift, including setting up a non-registered online account, just in case the markets turn to jelly, and Fake Flop comes out for a run on the previous thread.

I’m not sure during a pandemic is the right time to franchise out the Flop name.

Saturday is traditionally chart day, so in that spirit, here, have a chart…

M46BC

The Historic Collapse of U.S. Airline Stocks In One Visual.

“During a global pandemic with a highly contagious airborne disease, who wants to go shoulder-to-shoulder on an airplane with hundreds of other travelers? It’s no surprise that travel numbers fell off a cliff in 2020, but here’s how the stock market reacted to the turmoil inside the U.S. airline industry.

* Allegiant was the only U.S.-based airline to see its share price end 2020 in positive territory, opening the year at $175.14 and closing at $189.24.

* Every other U.S. airline saw a net decrease in stock market value, in some cases like United, as much as -50%. Most finished the year down by more than 25%.

* U.S. airlines started the year like the rest of the stock market at relatively recent highs, only to crater with the onset of the pandemic as millions of people decided to cancel plans and stay home.

* Airlines have seen their stocks recover from their 2020 lows, however the vast majority of the industry still has a long road to recovery.”

https://howmuch.net/articles/major-us-airlines-stock-price-oscilations-2020

#32 Penny Henny on 02.20.21 at 4:31 pm

Don’t fall for that trap. Property taxes are based on market value assessment, and many homes are not actually reassessed correctly (ie – street value) until they change hands. Then huge tax hikes can take place – a nice welcoming for the new owners. – Garth
///////////

From what I read on MPAC they have a very simple program to formula to assess homes.
“To assess your residential property, we analyze the sales of similar properties that have sold in your area. Based on the sales information, there are five major factors that generally account for your property’s assessed value.

There are five key factors that affect your property’s value:

1.Age of the buildings on the property.
2.Exterior square footage.
3.Location of your property.
4.Size of your lot.
5.Quality of construction.”

Those are the main ones, there are others of course
(finished basement area, garage, etc)

https://aboutmyproperty.ca/property-assessment

#33 ogdoad on 02.20.21 at 4:39 pm

I love this blog!

I heard a phrase once in a movie: no risk’it no biscuit.
Where does risk land on a list of emotions? Along fear? Hope? F’it?

spitze is, our empire from the south is quite happy flaunting the fact that risks pay off. And when we plug in aren’t we seeing the most successful risk takers? Who we want to be?

whatever…personally, if I can stop spending money on booze, what’s left will be all-in in the next GME. Why? B/C media is nudging me to.

Og

#34 Dominoes Lining Up on 02.20.21 at 4:40 pm

#24 and #27 Penny Henny

I think Garth dressed you down rather well, but since you are speaking to me, let me also respond:

Property taxes are based on MPAC assessed market values, not this week’s sales prices. The principle is that these should be similar, but there is often a lag due to sales timings, as Garth mentioned. MPAC reassesses every four years, or upon request, or if there are substantial changes to properties and markets. (Watch out for that in your area!)

When the MPAC values and market prices are greatly disconnected, that suggests a correction is due, either way, and likely a big jump in property taxes ahead, as Garth told you.

Did you even notice, I used a link from Welland’s very own tax calculator to prove how faulty your reasoning was? Here it is again:

https://www.welland.ca/Finance/TaxCalculator.asp

By choosing wilfully to compare apples and oranges, you are demonstrating exactly the kind of financial illiteracy that has fuelled the crazy Covid real estate bubble in places like Welland, Peterborough, Woodstock and many more.

The fact that all of these areas have much higher ‘mill rates’ (the % of assessed values that towns will charge as property tax) than Toronto should be an ominous warning to you.

Toronto properties, due to greater sales activity, are generally assessed at closer to recurring market values than in these smaller cities and towns right now.

Spending the same amount in $Canadian (after all, we’re using the same currency whether in Toronto or Welland, right!?) for a property will indeed mean higher property taxes outside the 416 than inside.

Any other calculations are just irrational, self-serving justifications.

Good news though – you are exactly the kind of person that the real estate industry spin loves to profit from!

#35 Faron on 02.20.21 at 4:42 pm

#29 Re, faron on 02.20.21 at 3:56 pm

Good grief . knowledge is the antidote of fear

There’s risk in anything , like opening a restaurant as an example

‘you better know what you’re doing ‘

That’s why I noted to educate oneself. Capiche?

Dolce, is that you?

I know enough about options trading to understand that without substantial training and experience in finance, traging options is a bad idea. Selling options as a specific, stand alone strategy is even worse.

I’m assuming you are like me and got swallowed trying to learn options trading in the last year? Prove me wrong. I joke about some options, like following the TSLA put (now expired worthless) but don’t advocate trading them to anyone. This blog is not the place for that kind of trading or really any trading aside from buy and hold.

Best of luck. Let us know when you get margin called.

#36 Penny Henny on 02.20.21 at 4:54 pm

#30 Adam on 02.20.21 at 4:02 pm
Serious question. I am relatively new to this blog comments section. What is the deal with user “TurnerNation”? All of his posts sounds like manifestos and scare the hell out of me. His posts are filled with random thoughts and abrupt out of place comments and I don’t even know what I am reading half the time. Yet the guy seems to post here every single day without fault.
///////////////////

TurnerNation is a savant. Listen and learn.

Sheesh. Don’t encourage him… – Garth

#37 Bezengy on 02.20.21 at 5:07 pm

Property tax??

Timmins tax rate 1.833323
North Bay 1.528326
Sudbury 1.492189
Toronto 0.599704

Even with this ridiculously low tax rate in TO considering John Tory can’t open his mouth with out asking for more money, Toronto only collects a fraction of the taxes owed to them due to the fact their assessments are anywhere from 25 to 75 percent lower than the actual house value. This is more about vote buying than anything. Want to get elected?, better keep those folks in the city happy.

#38 NSNG on 02.20.21 at 5:22 pm

The Fed was not respecting Mr. Market. The Fed papered over every attempt by Mr. Market to restore fiscal discipline so Mr. Market had to find another way. He did, with shockingly excellent precision.

And then the Fed papered over that also, refusing to take the whipping with humility.

Mr. Market is not amused. Now he will roll up his sleeves, bide his time….and wait.

His opportunity will come. It always does.

#39 Penny Henny on 02.20.21 at 5:23 pm

#34 Dominoes Lining Up on 02.20.21 at 4:40 pm

Good news though – you are exactly the kind of person that the real estate industry spin loves to profit from!

/////////////

They have profited from me and I have profited greatly from owning property. My near perfect timing in and out of the Toronto real estate market (bought in 1995 sold spring 2017, couple of lateral moves in between) has enabled me to retire at the ripe old age of 48.

All your fear about rising property taxes has kept you scared and renting. Will the market crash one day? Maybe. But you’ve hesitated this long and now you are priced out forever.
BTW if you did own property in Toronto you would be well aware that assessed values are but a fraction of the ACV. You do not have any experience owning property or paying property taxes that is very obvious.

#40 Damifino on 02.20.21 at 5:39 pm

#30 Adam

Scroll wheel… use it.

#41 paulo on 02.20.21 at 5:40 pm

#36 henny penny:

Im thinking TurnerNation has been having to many beers with the Apocalypse now dude.

#42 Gena on 02.20.21 at 5:46 pm

Excellent article. I always struggle departing with cash.

#43 BC Renovator on 02.20.21 at 6:02 pm

Exactly why most retail investors should have a Broker they trust and that can keep them in check. Do not micromanage.
Best thing I said to my Broker after a discussion on risk- “treat it like its your money”

#44 Dominoes Lining Up on 02.20.21 at 6:09 pm

#39 Penny Henny

#34 Dominoes Lining Up on 02.20.21 at 4:40 pm

Good news though – you are exactly the kind of person that the real estate industry spin loves to profit from!

/////////////

They have profited from me and I have profited greatly from owning property. My near perfect timing in and out of the Toronto real estate market (bought in 1995 sold spring 2017, couple of lateral moves in between) has enabled me to retire at the ripe old age of 48.

All your fear about rising property taxes has kept you scared and renting. Will the market crash one day? Maybe. But you’ve hesitated this long and now you are priced out forever.
BTW if you did own property in Toronto you would be well aware that assessed values are but a fraction of the ACV. You do not have any experience owning property or paying property taxes that is very obvious.

_____________________________

Again, your irrational comparisons and post hoc fallacious thinking are obscuring reality for you.

I notice you compared your properties in terms of lot size and dimensions from Welland to Toronto.

Irrelevant.

That’s not what the market cares about. With the soon-to-be-fading exception of the Covid WFH bubble, few want to live or try to find work in the Welland-Niagara areas. I know, I’ve worked there. It really sucks compared to opportunities in the GTA. That’s why the house prices there have been so low for so long. And will be again.

Let’s just say that based upon my knowledge and experience I probably have about 100X your familiarity with property tax issues, and still have many friends working in the field right now.

MPAC’s assessments have always been fairly cautious, and until 2008 were much closer to sales prices. But even now in Toronto, they are not “a fraction”, as you blindly suggest, of sales prices.

Prior to the 2021 bubble surge, the MPAC valuations have been about 50-70% of most GTA homes. Before 2008 and the Flaherty/Harper bubble incentives, they were closer to 80-90% of sales prices.

Careful, conservative, that is MPAC – kind of like the CMHC warning of a real estate bubble eh…but few pay attention.

Good for you to have been lucky to buy in Toronto in the 1990s. I have also, been in and out of the market there for over twenty years and made good coin. Now I rent and own properties far away.

But I would not touch anything real estate in Toronto right now with a ten-foot pole.

Welland?

OMG, the pain there is going to be excruciating when the market corrects and the vaccines are in full force.

If I were you, I would bail in the next few weeks, find some Greater Fools from the GTA to buy your home, and stop trying to rationalize your current situation.

Your risk of loss there is enormous.

#45 Phylis on 02.20.21 at 6:24 pm

#30 Adam on 02.20.21 at 4:02 pm His deal is two posts per day.

#46 Wrk.dover on 02.20.21 at 6:25 pm

#24 Penny Henny on 02.20.21 at 3:09 pm

++++++++++++++++++++++++++++

That “park” a golf club swing to the north of the house in “Toronto”(the Renforth), was the site of a ski hill man made of garbage around Canada’s centennial, until it was removed because….but I did ski there once. Right under a flight pattern to boot! But jets are 90% grounded right?

#47 Russ on 02.20.21 at 6:48 pm

Adam on 02.20.21 at 4:02 pm

Serious question. I am relatively new to this blog comments section. What is the deal with user “TurnerNation”? All of his posts sounds like manifestos and scare the hell out of me. His posts are filled with random thoughts and abrupt out of place comments and I don’t even know what I am reading half the time. Yet the guy seems to post here every single day without fault.
===================

Hi Adam,

Welcome to the steerage section of Garth’s pathetic blog.

TurnerNation is just one of the many personalities sitting in the lunatic fringe.
https://www.youtube.com/watch?v=sTFVMMCwsss

There are many more that are scary and/or just annoying.

At the risk of offending others by omission I will not mention:
Faron
IHTD9
Sail Away
crowdedelevatorfarts
Dolce Vida
(in no particular order)

The two who make the most sense are willworkforpickles and Nonplused.

But really just scroll through the comment section quickly and pause to read any Garth reply to a comment.
It can save time.

Cheer up.

Cheers, R

#48 Beyond the Missouri Sky on 02.20.21 at 6:48 pm

I was just checking out prices for a ticket to Missouri when the travel agent told me I would need to quarantine for 14 days.

Sorry, no can do!

#49 Capt. Serious on 02.20.21 at 6:50 pm

My biggest dilemma currently is what to do with the supposedly safe bond portion of my portfolio. I’ve had some stuff roll over and have been holding it in short term cash (think T-bills) instead of bonds. If we accept (and I do) that the starting yield fairly accurately predicts the return on bonds, then there is not much there. The shock of 2020 also showed that bond ETFs can come under stress at the exact moment that one wants to sell them to re-balance. That was an instructive event for me. So, until yields are higher I am not willing to pick up pennies in front of a steamroller. That money sits earning next to nothing for the time being. Note this does not mean I am not fully invested, just what would have rolled back into bonds is now in cash. People will say “you don’t hold bonds for income” but if I can’t cash them out when I need to without taking a loss due to volatility in the market, they’re not doing what I need them to do. And with yields super low, there is not much to be gained if rates fall, but capital loss ahead if rates rise (has already been happening to longer maturities, see XBB, for example). In the long run falling prices / rising yields are what we need to restore bonds to useful, but we have a ways to go to get there — looking at you central banks for when you finally take away the candy bowl.

#50 Penny Henny on 02.20.21 at 6:51 pm

Dominoes you remind me of someone who used comment here years ago.
He was so jealous of his sister buying a house in Milton just before the property values there ran up like crazy. So jealous that he wished the market would tank so he could say ‘I told you so’.
Your M.O. seems to be that property tax increases will now crater the market. Ain’t gonna happen, you don’t understand how assessments, mill rate and budget needs all jibe together.
The poster who remind me of is LaughingCon.
Who knows maybe you are the Toronto version of VREU.
Either way, so sad.

#51 millmech on 02.20.21 at 6:53 pm

#23 Faron
Please explain how selling a call exposes you to infinite losses. I am curious to know.

#52 Fake Name on 02.20.21 at 7:09 pm

Selling OTM covered calls is pretty safe.. and i think that’s also what #17 is referring too

#53 Nonplused on 02.20.21 at 7:22 pm

Not much to comment on Doug’s article today, it seems pretty straight up, so here’s something from the wild world of Trudeau’s government: C-21

https://www.youtube.com/watch?v=q2oIWs_h3Vc&feature=emb_logo

To save you time watching it, your kid’s airsoft gun is going to be illegal because it closely resembles a real gun. BB guns are probably out too. My son just became a criminal several times over. What’s next? Nerf guns? Are they going to enact limits on the amount of darts a Nerf gun magazine can hold? Or ban Nerf guns altogether? My son probably has 20 of them so he’d be in real trouble. He’s kind of outgrown them so I suppose they can take them.

Things like this make me kind of look forward to the collapse of society. Our government has grown way beyond its’ usefulness.

#54 CJohnC on 02.20.21 at 7:25 pm

#30 Adam. Re Turner Nation

Simply a person of many hats. Most of them tinfoil
TL;DR mostly a waste of Garth’s bandwidth

What’s scary is that #36 Penny Henny thinks he’s Savant

#55 Don Guillermo on 02.20.21 at 7:25 pm

#48 Beyond the Missouri Sky on 02.20.21 at 6:48 pm
I was just checking out prices for a ticket to Missouri when the travel agent told me ……………………………..
******************************************
What’s a travel agent?

#56 Dolce Vita on 02.20.21 at 7:34 pm

#35 Faron

Dolce, is that you?

———–

No.

I know how to spell “mi capisci” in Italiano. [do you understand me]

In the Napoletano dialect:

m’ capisc

I DIGRESS…

and you can also append at the end, to express exasperation:

…well Garth would not be very happy with me; thus and in the interests of Blog Decorum, the word I’m thinking of [Hint] rhymes with “pazzo” the latter meaning crazy in Italiano.

A lot like your typical crazy person Neopolitan taxi driver would say when the light just turned green a nanosecond ago and you have not floored your car a nanosecond later:

A CHI *AZZO ASPIETTE?

One of the many reasons I love Napoli and its crazy fun full of life people. Palermo taxi drivers have the same expectations just after a green light. In Roma, there are no lights, well there are, but you just keep driving no matter what.

-FWIW

#57 Nonplused on 02.20.21 at 7:38 pm

#51 millmech on 02.20.21 at 6:53 pm
#23 Faron
Please explain how selling a call exposes you to infinite losses. I am curious to know.

——————————

I don’t agree with Faron on much but he’s more or less right about this.

Suppose you’d sold GameStop calls at $30 prior to the explosion when the price was $20. You might have got a dollar or two. Then you’d be buying the shares back at $460 and delivering them at $20 for a net loss of $439 per share. Lets see, $1 potential profit, $439 dollar loss, that’s a 43900% loss! Not quite infinite but close enough.

Or imagine you had sold call options on power in Texas recently. You’d certainly be bankrupt. In fact, I think we are going to find out some people are.

Covered calls (you already own the underlying and are just trying to make some beta) or puts are less risky but can still sting. (With a covered call you just miss the upside, with a put the most you can lose is everything, the stock cannot go below zero.)

There was a saying back in my day: “Sell a Tienie lose your Wienie”.

#58 Dolce Vita on 02.20.21 at 7:54 pm

#47 Russ

Dolce *Vida

———–

*I am not Spanish.

Nor am I a Ricky Martin acolyte such as yourself.

#59 Job#1 on 02.20.21 at 7:58 pm

#47 Russ, re Adam/TurnerNation

Your opinion is noted.
I enjoy TurnerNation’s comments. I appreciate his expenditure of time digging up interesting links. Whether or not I agree with his commentary is irrelevant. He presents alternative sets of reasons and motives ascribed to the political elite that rule our lives. He doesn’t believe they’re doing everything for our own good. What a shocking concept to imagine.

#60 Ponzius Pilatus on 02.20.21 at 8:02 pm

#47 Russ on 02.20.21 at 6:48 pm
Adam on 02.20.21 at 4:02 pm

Serious question. I am relatively new to this blog comments section. What is the deal with user “TurnerNation”? All of his posts sounds like manifestos and scare the hell out of me. His posts are filled with random thoughts and abrupt out of place comments and I don’t even know what I am reading half the time. Yet the guy seems to post here every single day without fault.
===================

Hi Adam,

Welcome to the steerage section of Garth’s pathetic blog.

TurnerNation is just one of the many personalities sitting in the lunatic fringe.
https://www.youtube.com/watch?v=sTFVMMCwsss

There are many more that are scary and/or just annoying.

At the risk of offending others by omission I will not mention:
Faron
IHTD9
Sail Away
crowdedelevatorfarts
Dolce Vida
(in no particular order)

The two who make the most sense are willworkforpickles and Nonplused.
——–
Buddy.
Who are you to  judge the steerage section?
You have no idea how hard it is become a member.
Have you ever posted?
Try it and you’ll find out what it takes to join.
Basic requirements are:
At least 10 deleted comments.
At least 10 comments where you insult a fellow blog dog.
Being banned for at least a month gets you admitted automatically.
Send the application form to our President CEF, in a brown envelope.
Cash only.

#61 leebow on 02.20.21 at 8:06 pm

#56 Nonplused

Covered call is a short put.

#62 Nonplused on 02.20.21 at 8:08 pm

#47 Russ on 02.20.21 at 6:48 pm
Adam on 02.20.21 at 4:02 pm

===================

Welcome to the steerage section of Garth’s pathetic blog.

TurnerNation is just one of the many personalities sitting in the lunatic fringe.
https://www.youtube.com/watch?v=sTFVMMCwsss

The two who make the most sense are willworkforpickles and Nonplused.

———————————-

Well thanks, but I have my detractors, have been corrected on many occasions, and get the occasional DELETED. But that is why we come here, to learn. Learning is not possible without diverse conversation. And Garth provides the best place for that that I have found on the internet. And I have seen a lot of it.

Faron doesn’t agree with me about near anything and might have Tourette’s, but one thing we do agree on is that the use of the scroll wheel is a powerful tool once you come to know some of our fellow commenters. I am sure I get scrolled often.

#63 Lucky Animal on 02.20.21 at 8:10 pm

#51 millmech on 02.20.21 at 6:53 pm

Please explain how selling a call exposes you to infinite losses. I am curious to know.

That’s exactly when you are exposed to potential large losses. Selling covered calls protects you. Selling puts does not expose the seller to “infinite” losses.

#64 John S Brydle on 02.20.21 at 8:20 pm

Excellent article Doug, great food for thought. Thank You.

#65 mike from mtl on 02.20.21 at 8:31 pm

#49 Capt. Serious on 02.20.21 at 6:50 pm
My biggest dilemma currently is what to do with the supposedly safe bond portion of my portfolio.
//////////////////////////////////////////////////////////

Valid point. This depends hugely on the fund’s holdings, bonds in general are not nearly as liquid as stocks and in normal markets act as if you have actually a collection. Longer duration and speciality issues do have liquidity issues, even if you directly bought a strip not in a fund. Bond funds can have runs and resort to forced selling of the most liquid and cash reserves. The bond market is very different to the over the counter stock market.

Though all considered, a 5% loss is very reasonable compared to 30% loss of equites and 20% loss that regularly happens with preferreds.

#66 Al on 02.20.21 at 8:33 pm

“This is the first problem with cash positions. It’s almost always an emotional decision. In investing (and with most things, frankly) emotional decisions are bad decisions.”

There, fixed it for ya.

#67 Sail Away on 02.20.21 at 8:34 pm

#52 Nonplused on 02.20.21 at 7:22 pm

To save you time watching it, your kid’s airsoft gun is going to be illegal because it closely resembles a real gun. BB guns are probably out too. My son just became a criminal several times over. What’s next? Nerf guns?

————

Crossbows. War steeds. Raccoon tail shirts and helmets with horns.

Own them at your peril.

#68 Phylis on 02.20.21 at 8:37 pm

#56 Nonplused on 02.20.21 at 7:38 pm …and typically multiply that loss by 100.

#69 crowdedelevatorfartz on 02.20.21 at 8:39 pm

@#59 Ponzie’s Paper Payout
“Send the application form to our President CEF, in a brown envelope.
Cash only.”

++++

Me and Mulroney, doing the Tango, for cash.

#70 Nonplused on 02.20.21 at 8:43 pm

While we are on the subject of options;

You can also go broke selling forwards, even if in theory you think you can deliver.

So yes I am back to Texas.

In addition to many people being surprised that their power bills are going to be $10,000 for the month of February, meaning it might have been better for you if your power went out, and who know what this will mean for a commercial business, consider the following.

Many power companies (and O&G, gold producers, etc.) “forward sell” their production, or at least a portion of it. Up to 50% up to 3 years forward is typical. That gives them the financial “proof” that they need to go to the bank and borrow money. Shorter term they will sell even more at “spot”, “day ahead” “rest of week”, monthly contracts, etc. The price is fixed. But then what happens when the wind “turbines” or the gas power plant won’t fire up? They still have to deliver the power, but they don’t have it, so they have to buy it back on the “spot” market.

I am sure in the coming weeks and months that we are going to find out that at least some power producers were bankrupted by this event. They sold at $25, the plant froze off, and they had to buy back at $1000. Maybe they will try force majeure but I don’t know if it will work.

I’ve already covered the need for everyone who can to have safe backup generation in recent days. It seems that in some cases even if the power stays on, you might save yourself the better portion of $10,000 if you can switch to your own power.

Next topic: Crop losses. Not just Texas but every state affected. 2 is the new 1 in the grocery store.

#71 Nonplused on 02.20.21 at 8:48 pm

#60 leebow on 02.20.21 at 8:06 pm
#56 Nonplused

Covered call is a short put.

———————————–

Explain.

#72 Anonymous on 02.20.21 at 9:08 pm

#22 Faron on 02.20.21 at 2:56 pm

Dr. V, do you ever get up on the Kludahk Trail/San Juan ridge?

Shh… The secret trail no one is suppose to talk about. Awesome place, sadly very unfriendly people behind it.

#73 Dr V on 02.20.21 at 9:16 pm

44 Dominos

“Prior to the 2021 bubble surge, the MPAC valuations have been about 50-70% of most GTA homes. Before 2008 and the Flaherty/Harper bubble incentives, they were closer to 80-90% of sales prices.”

I am not familiar with MPAC, but here in BC, this relationship to market price would have no impact one way or the other to your property tax.

The local government just looks at the total value of the assessments, and determines a “mill rate” based on their budget needs. Of course any local government can have its own issues, needs and wants, so expect some difference between locales, but generally, I would expect the average house in an undervalued
market to be taxed a similar amount as an average
house in an expensive market.

Overall, our house has gone up in value, but has gone down in some years. I don’t ever recall my tax bill being lower because of that. They just change the mill rate.

Does it not work this way in Ontari-owe?

#74 Faron on 02.20.21 at 9:17 pm

#56 Nonplused on 02.20.21 at 7:38 pm

#51 millmech on 02.20.21 at 6:53 pm
#23 Faron

There was a saying back in my day: “Sell a Tienie lose your Wienie”

Meaning: selling distant OTM options (sell for pennies = teenie) can seem like free money and is until some volatility enters the market and they land in the money. Even if they arent near expiry, you could be looking at spooky potential losses on paper as the underlying nears ATM or volatility spikes and the premium climbs rapidly.

If you had sold a thousand contracts for a penny a share you would have collected $1000. If the options land $20 in the money you loose $20x100x1000 or $2 million. That’s your weenie.

The only way to hedge is to be long or short shares of the underlying.

#75 Sail Away on 02.20.21 at 9:37 pm

#4 Faron on 02.20.21 at 12:21 pm

Anyhow, a smidge of your reason made it’s way into that decision.

————

Glad to hear it. Helping others is my passion.

You, Ponzie, Ustabe, Dolce… even Sara, who seems scarce lately. Maybe I helped her so much she has self-actualized and needs no more help?

Anyway, I’m pleased. It’s hard work, yes, but sooo worth it.

#76 Dr V on 02.20.21 at 9:38 pm

22 Faron – I had considered exploring the San Juan Ridge a few years ago but did not make it. Thanks for reminding me. I found a site that noted several access points.

#77 Tyberius on 02.20.21 at 9:45 pm

So, the average American has about $4k more in bank deposits now than in 2017. Obviously CERB-like government checks found their way into bank accounts (and some in Gamestock).

The real question is, how is this relevant in predicting market movements into the future.
I don’t know of any.

There is however, one other metric that is at an extreme, which also has predictive value:
“margin debt”.

It recently surpassed the levels of 2000 as a ratio to GDP, at over 3.5% (it peaked at about 3% in 2000).
https://www.investopedia.com/margin-debt-reaches-new-high-5093761

Being in cash has never looked more prudent. I’m waiting for the next “dip” to scoop up quality companies.

#78 Agent provocateur on 02.20.21 at 9:49 pm

#54 Don Guillermo on 02.20.21 at 7:25 pm

#48 Beyond the Missouri Sky on 02.20.21 at 6:48 pm
I was just checking out prices for a ticket to Missouri when the travel agent told me ……………………………..
******************************************
What’s a travel agent

*******************************
You might be familiar with the pejorative form…. Often referred to as “wife”!

#79 leebow on 02.20.21 at 10:04 pm

#69 Nonplused

Google Put-Call parity. Basically, a covered call exposes you to all downside and gives no upside, just like being short a put.

#80 Hoagie's Hero on 02.20.21 at 10:12 pm

Hi Doug, do you start raising cash when the 10yr US Bond rate starts climbing rapidly?

#81 millmech on 02.20.21 at 10:24 pm

#56 Nonplused
I have 100 shares of Gamestop, that I bought for $10, I sell a call for a premium of $2.00 with a strike price of $30 45DTE and I collect $200 for the contract price. Gamestop hits $30(which is the price I was willing to let them get “called” away at), the next week in which they get assigned to the buyer who exercises the contract and pays me $3000 that I wanted to get for my shares.
Is this correct or where is the infinite loss capability that I have missed and what am I missing in my understanding of this.

#82 Don Guillermo on 02.20.21 at 10:30 pm

#76 Agent provocateur on 02.20.21 at 9:49 pm
#54 Don Guillermo on 02.20.21 at 7:25 pm

#48 Beyond the Missouri Sky on 02.20.21 at 6:48 pm
I was just checking out prices for a ticket to Missouri when the travel agent told me ……………………………..
******************************************
What’s a travel agent

*******************************
You might be familiar with the pejorative form…. Often referred to as “wife”!
*************************************

Ahhh, true dat

#83 Russ on 02.20.21 at 10:30 pm

Ponzius Pilatus on 02.20.21 at 8:02 pm

….
Welcome to the steerage section of Garth’s pathetic blog.

TurnerNation is just one of the many personalities sitting in the lunatic fringe.
https://www.youtube.com/watch?v=sTFVMMCwsss

There are many more that are scary and/or just annoying.

At the risk of offending others by omission I will not mention:
Faron
IHTD9
Sail Away
crowdedelevatorfarts
Dolce Vida
(in no particular order)

The two who make the most sense are willworkforpickles and Nonplused.
——–
Buddy.
Who are you to judge the steerage section?
You have no idea how hard it is become a member.
Have you ever posted?
Try it and you’ll find out what it takes to join.
Basic requirements are:
At least 10 deleted comments.
At least 10 comments where you insult a fellow blog dog.
Being banned for at least a month gets you admitted automatically.
Send the application form to our President CEF, in a brown envelope.

======================

Hey Ponzie,

May I bring your attention to the disclaimer:
“At the risk of offending others by omission”

I am a blog dog, been here may years, 2009 maybe. I like TN and Smokin Man ‘s take on the world. Good perspective on life in the big picture.

CV:
https://www.greaterfool.ca/2014/12/25/sprinkles/
comment #65, nothing special but it was the easiest to find without effort. I dropped the “L” years ago.

In around 2010 or 2011 I told Cici a story on this blog about sailing the South Pacific and proposing marriage to my wife, still to be.
Good times, I hope we meet some day.

Butt really, sic intentional, Sail Away & I have a realistic chance of meeting within the Nanaimo Yacht racing community.

I can count my deleted comments on one hand. 10? No thanks, I thought WTF on half of the wine ones.

Way past 10 on the insults. When faron arrived I thought he had good points. Now he seems like just a troll. Boring & monotonous.
Add +1.

Cheers and Best Regards, R

#84 Russ on 02.20.21 at 10:31 pm

Dammit.

Forgot to add:

We’re here to help Adam now. Correct?

Cheers, R

#85 BC Renovator on 02.20.21 at 10:53 pm

#47 Russ.

Agreed Faron is the worst and belongs at the top of your list

#86 Faron on 02.20.21 at 10:55 pm

#79 millmech on 02.20.21 at 10:24 pm

#56 Nonplused

If you are long the underlying, then your risk is capped. In your case you reap the premium of the sold call and if GME hits $30, then all good. You forego any upside beyond $30 as the trade off of that contract, so covered calls arent helpful with violent upward price swings, or can lead you to some FOMO as the rocket leaves the pad.

If you track volatility you see cases where vol rises as a stock or index levels off. If you own the underlying, then the high vol allows you to sell the call for larger premium. Given that high vol often accompanies a drop or imminent drop, that can be a way to prptect against some losses should the underlying fall.

#87 Faron on 02.20.21 at 11:06 pm

#60 leebow on 02.20.21 at 8:06 pm

#56 Nonplused

Covered call is a short put

If you sell a call while holding 100 shares and the share price drops you wind up with the premium plus you still have your shares. If you sell a put (short the put) and the share price falls so the put is in the money, you wind up with the premium and 100 shares given your contract to buy those shares.

Either way you are left with the premium for writing and 100 shares at x price. Same. However, if there is skew, then you will net differing premium from the put than the call. So, not quite the same.

#88 Faron on 02.20.21 at 11:17 pm

#70 Anonymous on 02.20.21 at 9:08 pm

#74 Dr V on 02.20.21 at 9:38 pm

Anonymous, I’m one of those people. They are protective because they have a carefully groomed relationship with the forestry company so want to avoid radical, logging hating greenies while also defending against vandalism. Lots of yahoos up on North/Jordan Main. They are actually good people.

Dr. V, there are good mapping apps out there that show the trail and will guide you. But, it’s a maze up there. Sounds like you cycle? If you Strava, look at those maps. The trail is on them.

#89 Faron on 02.20.21 at 11:21 pm

#73 Sail Away on 02.20.21 at 9:37 pm

#4 Faron on 02.20.21 at 12:21 pm

————

Glad to hear it. Helping others is my passion

Anyway, I’m pleased. It’s hard work, yes, but sooo worth it.

Careful, pat yourself on the back too hard and you’ll spit out that bite of Big Mac

#90 Nonplused on 02.20.21 at 11:28 pm

#79 millmech on 02.20.21 at 10:24 pm
#56 Nonplused
I have 100 shares of Gamestop, that I bought for $10, I sell a call for a premium of $2.00 with a strike price of $30 45DTE and I collect $200 for the contract price. Gamestop hits $30(which is the price I was willing to let them get “called” away at), the next week in which they get assigned to the buyer who exercises the contract and pays me $3000 that I wanted to get for my shares.
Is this correct or where is the infinite loss capability that I have missed and what am I missing in my understanding of this.

——————————–

That is a “covered call” because you already had the shares, so you can make good on delivery no matter what happens to the price. The “infinite risk” comes when you sell calls against shares you don’t own and find that you cannot buy them to deliver at any price.

#91 Nonplused on 02.20.21 at 11:38 pm

#77 leebow on 02.20.21 at 10:04 pm
#69 Nonplused

Google Put-Call parity. Basically, a covered call exposes you to all downside and gives no upside, just like being short a put.

——————————

I am familiar with Put-Call parity, which I think is a pile of crock even though I ran it through the risk management system expressed as deltas.

I will agree that selling covered calls caps your upside. Once the strike price is reached you get that amount plus the premium you charged, nothing more.

But in the case of selling a put, just throwing numbers out, let’s say the stock is trading at $20 and you sell an at the money put for a $1 dollar premium. Then the stock goes down to $10. A regular stock holder just lost 50% of his mark to market (or money if you like) but can ride it out if he choses. Same with someone selling covered calls. But the person selling puts just lost 1000% of their money. Well, their premium anyway.

You can kind of sell “covered puts” if the strike price is that which you were willing to purchase anyway, but it is a little different than covered calls.

#92 Nonplused on 02.20.21 at 11:43 pm

#72 Faron on 02.20.21 at 9:17 pm
#56 Nonplused on 02.20.21 at 7:38 pm

#51 millmech on 02.20.21 at 6:53 pm
#23 Faron

There was a saying back in my day: “Sell a Tienie lose your Wienie”

Meaning: selling distant OTM options (sell for pennies = teenie) can seem like free money and is until some volatility enters the market and they land in the money. Even if they arent near expiry, you could be looking at spooky potential losses on paper as the underlying nears ATM or volatility spikes and the premium climbs rapidly.

If you had sold a thousand contracts for a penny a share you would have collected $1000. If the options land $20 in the money you loose $20x100x1000 or $2 million. That’s your weenie.

The only way to hedge is to be long or short shares of the underlying.

———————————

Horary we agree on a third thing! Except that an option contract is usually 100 shares.

#93 DON on 02.21.21 at 1:21 am

#58 Job#1 on 02.20.21 at 7:58 pm
#47 Russ, re Adam/TurnerNation

Your opinion is noted.
I enjoy TurnerNation’s comments. I appreciate his expenditure of time digging up interesting links. Whether or not I agree with his commentary is irrelevant. He presents alternative sets of reasons and motives ascribed to the political elite that rule our lives. He doesn’t believe they’re doing everything for our own good. What a shocking concept to imagine.

***********

Everyone brings a different perspective…Turner Nation reminds us of the slippery slopes.

#94 NEVER GIVE UP on 02.21.21 at 3:45 am

#186 Sweet child o’ mine on 02.20.21 at 7:02 pm
#148 Father’s Daughter on 02.19.21 at 10:45 pm

So no, #137, you are welcome

________________________

I love how people try to lamely justify how their children are beneficial to me…as if my very survival is dependent on your children.

All I said is that I don’t want to pay for them. They are yours… You decided to bring them into this world. You pay for them. Without me subsidizing their education and your tax concessions, you would know how expensive they really are! After all, I am sure your children are just lovely and sweet… Just not to me!

Though if you are interested in returning the favor, I could use some help with the down payment on that new Porsche I’ve been eyeing!
===================================
What a selfish and short sighted view IMO.

Right now children are being subsidized with a Child tax credit of $250. roughly. Thats 3K a year.
That adds up to roughly 54K until age 18.
My first son of 7 is a CPA paying $150k per year in Taxes.
My Forth child is paying the same taxes working in IT in NY working for Peloton as well. Paying Canadian taxes BTW.
They are in the 50% tax bracket.
I have 5 more kids whom are all destined for this tax bracket but they are in various stages of their education.
In our case the tax credit was a lifeline while we were accessing the food bank during hard times.
My second child has struggled her way to Harvard where she is completing her PHD this year.
One of them has started this year in Rotman business School at U of T.
Save for the last 2 kids, I never had the ability to help my kids in Post Secondary Education. They did it all on their own. Loans, Bursaries, Grants Etc.
Trust me. In our case you will get your money back in Spades!
And be thankful you don’t have to live in a gated community with security guards like our neighbors to the south that don’t have the same support for people on the bottom tier like Canada does.

#95 Wrk.dover on 02.21.21 at 7:05 am

#54 Don Guillermo on 02.20.21 at 7:25 pm

What’s a travel agent?

——————————————————-

After finding the absolute right trip deal anywhere on line, THEN you get your local agent to BROKER it at no extra cost to you.

You get swag and an advocate, should a problem arise, FOR FREE! On our Caribbean travels, we always are issued a local contact person too. It’s better that way….

Who knew?

#96 Austrian Economist on 02.21.21 at 8:10 am

Not sure how this “cash on the sidelines” prevails. All you have to do is think about a transaction to understand this line of thinking is not accurate.
When one invests their cash into the markets the cash doesn’t just disappear, it is an exchange between a willing buyer and a willing seller. Therefore the seller now has the cash and is it too “sitting on the sidelines”?
Money is created in two different ways though quite similar. The primary way, and the one that most people are aware of, is the central bank creating the money. They do this by buying government debt from a willing seller, and they either print cash and ship it to a bank or credit the willing seller’s account (banks mostly). One is physical cash the other is digital but they function in mostly the same way.
The secondary way that money is created is when someone gets a loan. This loan could be a mortgage for a house, a car loan, credit card loan, etc. When someone gets a bank loan the banker doesn’t go to the vault and make sure there is enough money in there, they just do a double entry bookkeeping accounting credit and debit. They credit the borrower’s “cash deposit” and debit their “loan payable”. On the bank’s own balance sheet they credit “loan receivable” and debit “cash deposit”.
These two methods create money from nothing. The only way money is destroyed is by the repaying of debt which through double entry bookkeeping eliminates the money originally created.

#97 leebow on 02.21.21 at 8:24 am

#89 Nonplused

There is an error in your reasoning. Both covered call and put seller gained premium and lost $10.

Put-call parity is not crock. It’s one of the few model-independent equivalences in finance and is fundamental to understanding options.

#98 Stone on 02.21.21 at 8:36 am

#92 NEVER GIVE UP on 02.21.21 at 3:45 am
#186 Sweet child o’ mine on 02.20.21 at 7:02 pm
#148 Father’s Daughter on 02.19.21 at 10:45 pm

So no, #137, you are welcome

________________________

I love how people try to lamely justify how their children are beneficial to me…as if my very survival is dependent on your children.

All I said is that I don’t want to pay for them. They are yours… You decided to bring them into this world. You pay for them. Without me subsidizing their education and your tax concessions, you would know how expensive they really are! After all, I am sure your children are just lovely and sweet… Just not to me!

Though if you are interested in returning the favor, I could use some help with the down payment on that new Porsche I’ve been eyeing!
===================================
What a selfish and short sighted view IMO.

Right now children are being subsidized with a Child tax credit of $250. roughly. Thats 3K a year.
That adds up to roughly 54K until age 18.
My first son of 7 is a CPA paying $150k per year in Taxes.
My Forth child is paying the same taxes working in IT in NY working for Peloton as well. Paying Canadian taxes BTW.
They are in the 50% tax bracket.
I have 5 more kids whom are all destined for this tax bracket but they are in various stages of their education.
In our case the tax credit was a lifeline while we were accessing the food bank during hard times.
My second child has struggled her way to Harvard where she is completing her PHD this year.
One of them has started this year in Rotman business School at U of T.
Save for the last 2 kids, I never had the ability to help my kids in Post Secondary Education. They did it all on their own. Loans, Bursaries, Grants Etc.
Trust me. In our case you will get your money back in Spades!
And be thankful you don’t have to live in a gated community with security guards like our neighbors to the south that don’t have the same support for people on the bottom tier like Canada does.

———

Bark! Bark! Bark! That’s all I read.

Nobody cares about your useless children. What have they done for me lately?

Nothing? Then they’re useless. So are you. Now, go get a life.

#99 Penny Henny on 02.21.21 at 8:42 am

#44 Dominoes Lining Up on 02.20.21 at 6:09 pm

Welland?

OMG, the pain there is going to be excruciating when the market corrects and the vaccines are in full force.
///////////////////

It crashes, it crashes who cares.
I call it my home and I bought for $280,000 so even if it pulls back 50% I’m still in the red.
Point is it doesn’t matter Dominoes/LaughingCon, the Toronto housing lottery made me a million.

And I still say you don’t own jack nothing.

#100 Penny Henny on 02.21.21 at 8:58 am

#71 Dr V on 02.20.21 at 9:16 pm
44 Dominos

“Prior to the 2021 bubble surge, the MPAC valuations have been about 50-70% of most GTA homes. Before 2008 and the Flaherty/Harper bubble incentives, they were closer to 80-90% of sales prices.”

I am not familiar with MPAC, but here in BC, this relationship to market price would have no impact one way or the other to your property tax.

The local government just looks at the total value of the assessments, and determines a “mill rate” based on their budget needs. Of course any local government can have its own issues, needs and wants, so expect some difference between locales, but generally, I would expect the average house in an undervalued
market to be taxed a similar amount as an average
house in an expensive market.

Overall, our house has gone up in value, but has gone down in some years. I don’t ever recall my tax bill being lower because of that. They just change the mill rate.

Does it not work this way in Ontari-owe?

/////////////////

Yes Dr this is exactly how it works.
Dominoes is just trying to justify his decision to not get into the housing market and hopes that this is the catalyst that will bring the market back down to earth.
If he didn’t believe this he would be in a rubber room with Stan Brooks.
Hey where is the Mayor of Milton?

#101 Penny Henny on 02.21.21 at 9:08 am

#92 NEVER GIVE UP on 02.21.21 at 3:45 am

My first son of 7 is a CPA paying $150k per year in Taxes.
/////////////////

Seven kids?
7?

Now I know how you got your moniker.

#102 IHCTD9 on 02.21.21 at 9:46 am

#37 Bezengy on 02.20.21 at 5:07 pm
Property tax??

Timmins tax rate 1.833323
North Bay 1.528326
Sudbury 1.492189
Toronto 0.599704

Even with this ridiculously low tax rate in TO considering John Tory can’t open his mouth with out asking for more money, Toronto only collects a fraction of the taxes owed to them due to the fact their assessments are anywhere from 25 to 75 percent lower than the actual house value. This is more about vote buying than anything. Want to get elected?, better keep those folks in the city happy.
—————-

And yet…

https://torontostoreys.com/unhappy-toronto/

#103 Dharma Bum on 02.21.21 at 9:47 am

I just returned a bunch of empties at the Beer Store.

Wine bottles, mostly.

I received $21.00. CASH!

Any recommendations for how I should invest it?

I mean, who needs to be holding that kind of money?

It should be working for me. Amirite?

#104 Dominoes Lining Up on 02.21.21 at 9:47 am

Penny Henny, I both laugh at your comments and feel sorry for you.

You are completely infected with Real Estate Derangement Syndrome. Amusingly, you lack any sense of irony, given that this blog is in no small part Garth’s attempt to help people overcome exactly that herd mentality, and re-purpose their financial thinking towards balanced and diversified investing.

Are you a realtor, or maybe just a wannabe? You would fit perfectly in that industry in southern Ontario.

Stay warm in the herd. Until you have your Texas moment.

Thanks for the chuckles!

#105 Triplenet on 02.21.21 at 9:47 am

#7 Faron

Earthquakes occur all the time all over the world, both along plate edges and along faults. Most earthquakes occur along the edge of the oceanic and continental plates. … Earthquakes can also occur far from the edges of plates, along faults.

#106 millmech on 02.21.21 at 10:06 am

#91 NonPlused
Would that not be a cash secured put.
Would this system also expose someone to infinite risk that is inherent to options trading.

#107 Sail Away on 02.21.21 at 10:42 am

#101 Penny Henny on 02.21.21 at 9:08 am
#92 NEVER GIVE UP on 02.21.21 at 3:45 am

My first son of 7 is a CPA paying $150k per year in Taxes.

————

Seven kids?
7?

Now I know how you got your moniker.

————-

My Finnish childhood buddy Antti has 20 brothers and sisters. Yes, 21 altogether with 4 sets of twins then the rest as singletons. Happy household on permanent fund day (Alaska resident oil dividend)!

One day, a local crank was complaining at the grocery checkout about the family having too many kids, using too many resources, etc., and she asked the bagger, ‘Do you know that family?’

He said, ‘Yep, I’m Mikko. Number 11.’

#108 Sara on 02.21.21 at 11:02 am

#75 Sail Away on 02.20.21 at 9:37 pm

Beats self-aggrandizing.

#109 NEVER GIVE UP on 02.21.21 at 11:03 am

#101 Penny Henny on 02.21.21 at 9:08 am

LOL!

Yeah…I’m a bit of a slow learner though….
Once I figured out what was wrong…..Snip..Snip!

#110 Dan in Nanaimo on 02.21.21 at 11:10 am

Holding cash for some folks is a tactical necessity – not an emotional decision

Investing, on the other hand, is a luxury reserved primarily to “first world” citizens.

Cash has a tangible and tactile history

Travel around the world to countries in South America, South East Asia, Africa and you will understand what cash means. The proliferation of coloured paper that is used to conduct trade between ordinary folks.

Cash is confidence.

And confidence is the foundation for pretty much everything that makes the world go around

#111 NEVER GIVE UP on 02.21.21 at 11:12 am

#98 Stone on 02.21.21 at 8:36 am
Bark! Bark! Bark! That’s all I read.

Nobody cares about your useless children. What have they done for me lately?

Nothing? Then they’re useless. So are you. Now, go get a life.
===================================

WOW! So hostile! I LOVE IT!
Made me fall off my chair laughing!

I’m actually hoping your OK though. Sounds like the Lockdown could be getting to you!

As Dr. Bonnie Henry would say…. Be Calm, Be Well!

#112 Doug Rowat on 02.21.21 at 11:15 am

#80 Hoagie’s Hero on 02.20.21 at 10:12 pm
Hi Doug, do you start raising cash when the 10yr US Bond rate starts climbing rapidly?

—-

Virtually any asset class performs better than cash, so why ever be raising more of it? Hold more cash when you have an upcoming expense that’s a certainty in order to shelter these funds from volatility. Otherwise stay fully invested.

—Doug

#113 Sail Away on 02.21.21 at 11:16 am

#187 Just give up already on 02.21.21 at 3:55 am

….some of us LOVE architecture, design, building, and living in a beautiful place that we can add value to.

The rest of you are like Campbell soup fanatics who can’t understand why anyone would eat an expensive restaurant meal, since ‘food is just fuel’.

————

Nothing wrong with expensive if the expense brings good value. Also nothing wrong with enjoying life’s simple inexpensive pleasures. A Big Mac is hard to beat. A Big Mac and schlocky art together? Priceless!

#114 Steven Rowlandson on 02.21.21 at 11:37 am

“didn’t occur at some tectonic fault line, rather it occurred in, of all places, New Madrid, Missouri.”

Actually Doug the quake did occur on a fault. The catch is that the fault is a deeply buried rift fault that very well could be linked to the Wabash fault , the fault under lake superior and lake Ontario and the fault system under the Ottawa and Saint Laurence valleys.
These are very old geologic systems that are not entirely inactive.

#115 Sail Away on 02.21.21 at 11:41 am

#103 Dharma Bum on 02.21.21 at 9:47 am
I just returned a bunch of empties at the Beer Store.

Wine bottles, mostly.

I received $21.00. CASH!

Any recommendations for how I should invest it?

I mean, who needs to be holding that kind of money?

It should be working for me. Amirite?

————

Let’s examine the scenario:

$21 in wine bottle returns at $.020/bottle equals 105 bottles.

At $15 each, this represents a household expense of $1,575. Assuming this is an annual ongoing expense, an elegant solution is to invest sufficiently in a liquor company so dividends cover your wine habit.

Andrew Peller (ADW.A.TO) pays a dividend of 2.22%… so $71,591 invested here will pay $1,575 annually. Invest your $21, top it up with $71,570 and you’re drinking for free!

#116 Steven Rowlandson on 02.21.21 at 11:56 am

“didn’t occur at some tectonic fault line, rather it occurred in, of all places, New Madrid, Missouri.”

Actually Doug the quake did occur on a fault. The catch is that the fault is a deeply buried rift fault that very well could be linked to the Wabash fault , the fault under lake superior and lake Ontario and the fault system under the Ottawa and Saint Laurence valleys.
These are very old geologic systems that are not entirely inactive.

https://www.ontariobeneathourfeet.com/ottawa-bonnechere-graben/
https://www.usgs.gov/natural-hazards/earthquake-hazards/science/new-madrid-seismic-zone?qt-science_center_objects=0#qt-science_center_objects

Lake Superior and the 1.1 billion-year-old Midcontinent Rift
https://vimeo.com/147648292

Earthquakes and Geological Structures of the St. Lawrence Rift System
https://ui.adsabs.harvard.edu/abs/2013AGUFM.T14A..03L/abstract

#117 DON on 02.21.21 at 12:25 pm

Look at the stress on this site…or just bad moods or bad moves. We all have them and we all make them.

Wonder what the stress is for folks. Actually i don’t wonder…you can see the cracks every where. COVID lockdown or financial stress or the stress of being locked up with your spouse and dog forbid the kids.

People know things do not make sense on a bunch of different levels and angst is running high. Maybe not as much as us blog dogs but that doesn’t matter when we are the few.

I read yet another article on the climb of interest rates…the article sounded like it was a good thing…meaning growth was returning. Bad for those who through common sense out the window.

The meme will change but the fallout will remain.

The signs are all around us. Recency bias is the wrong road to go down.